In the decentralized project world, 2016 was the year of the crypto-project fundraise. Crowdfunding emerged as one of the successful use cases of smart contracts and the blockchain technology that’s been built to date. As a result of the fundraises that took place last year, 2017 is set to hopefully be the year of crypto-project launches. The promises and alphas of 2016 will turn into production products, and a wider group of users will begin to be exposed to the benefits of decentralization. This is the next logical step in the right direction, but the set of users who will be anxiously awaiting the launch of the latest batch of crypto projects are still users who are inside the ecosystem; they’re familiar with tokens and wallets, with exchanges and private keys, with transaction costs and gas. To truly deliver impact at internet scale, projects need to think about a strategy for crossing the crypto gap — for bringing the power of decentralization, without the end user being aware of the complex crypto based plumbing operating at the protocol level.
Crypto-token Protocols Under The Hood
At their core, many of the blockchain based projects are protocols which enable machine to machine communication and transactions, resulting in consensus on the state of a database in a game theoretically secure way. It is possible for these protocols to be entirely abstracted away from the end user, regardless of whether that user is a consumer using a social content application, or a business balancing the accounting of their supply chain.
It’s important that in the early stages of these projects, the protocols and the tokens that power them, are exposed to the early project participants. The openness and the token based incentives serve as kindling to get early momentum behind the project. But as that momentum is attained, the incentives don’t go away just because they’re abstracted to the larger audience. Although not a decentralized protocol, an interesting example here may be the P2P payments company, Circle, which recently de-emphasized the use of cryptocurrency within the frontend of its mobile app. They were able to bootstrap the project on the back of blockchain technology and decentralization, and although they may still realize the benefit of doing so under the hood, they have determined that they can reach a larger audience by hiding it from the end user.
Taking a more decentralized set of examples, it is probably not a big leap to make to assume that a larger audience will be able to use projects like Golem (decentralized cloud computing), if they don’t have to figure out how to acquire, store, and transact in their token, and more users will use Augur, if they don’t have to understand REP and event resolution. Though in the short term, exposing the early testers, engineers, contributors, and builders to the incentives these protocols provide, certainly jumpstarts the ecosystem. The eventual goal should be that the end user isn’t any more aware of the protocol or token flowing beneath the product, than they are of the 15 different steps that take place in the settlement process when they swipe their credit card at the corner store.
Decentralized to Centralized to Decentralized
The best path to getting to this level of abstraction may not be a path of full decentralization for the duration of the maturity cycle of a crypto project. Perhaps it looks like:
- Development of an open, decentralized, token-powered protocol.
- Creation of a centralized entity to create the abstractions necessary to bring the power of the protocol to a wide audience and drive demand for the token.
- Ecosystem of value providers take advantage of the original openness of the protocol, to build a whole set products and services that once again decentralize the power of the protocol. They compete to fill the gaps and add/capture value that the centralized entity never could.
Step 1 introduces the incentives to overcome the chicken and the egg problem, step 2 creates demand and brings the benefits to the mainstream, and step 3 takes the project from product to platform, with the token evolving to a Sectorcoin along the way.
One of the important steps that the slight centralization step solves, as it relates to crossing the crypto gap, is that instead of touting the benefits of crypto, and self sovereignty, and tokens, and blockchain, and whatnot, a centralized entity can make sure to deliver one or more of the following benefits to the users:
- Cost savings — the most important benefit if it can be delivered.
- Performance — scalability, speed, etc.
- Decentralization — lack of censorship, no trust in central party, etc.
It may take a centralized entity to go from protocol level details, to an amazing product that people or businesses want to use that brings a real business benefit. And then, when the network is spinning as a result, a whole ecosystem can form around the original open protocol. It may not be decentralization in its purest form from day one, but it may be a faster path to delivering the impact that many believe is possible.